Tuesday, August 22, 2006

YET ANOTHER FACE OFF

THE AMBANI BROTHERS CONTINUE TO TAKE THEIR RIVALRY TO NEW LOWS

There was indeed a lot of bad blood between the Ambani brothers post the split. Largely though, the two seemed to be charting their own destinies. In the more recent past, however, the two seem to be crossing each other’s paths more oft en, and this is creating further complications in their relationship (or what’s left of it anyways!). After relentless altercations on issues like SEZs, airport and many others, the duo are again caught in a mêlée. This time, the bone of contention is the Navratana gas sector. On July 26, 2006, the Petroleum Ministry put a red cross to the gas supply agreement between Mukesh Ambani’s Reliance Industries Limited (RIL) and the Anil Ambani owned Reliance Natural Resources Limited (RNRL). The Ministry rejected RIL’s proposal to supply gas to RNRL at $2.34 per mBTU (million British thermal unit), which is less than half the market price of $4.7 per mBTU.

So what does all this mean for RNRL? States Vijay Narayanan, Senior Research Analyst with Almondz Capital Markets, “If the current opinion is upheld, RNRL will have no option but to purchase gas at prices higher than the current.” He elaborates that even a one dollar rise in the price of gas will raise the price of electricity by around 30 paise per unit. This would, in turn, result in higher electricity generation costs. But this cannot be effectively passed on to consumers as electricity prices are regulated by law. These developments have put RNRL on the offensive, and it has accused RIL of manipulation. A spokesperson with RNRL states, “RIL is deliberately misleading the Ministry of Petroleum and Natural Gas by withholding the full facts of the case. RIL’s attempt to mislead the Ministry is solely motivated by its selfish desire to secure a higher price for gas.”